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An economic recovery likely after the elections | The Express Tribune

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LAHORE:

As Pakistan heads towards general elections, there is a glimmer of hope among the public and the business community. Almost everyone, whether rich or poor, businessman or economist, job seeker or job holder, pins their hopes on the next government, believing that it will be able to improve the economy and significantly reduce inflation.

Although it is premature to predict which party or group of political parties will form the next government, the economic recovery program is at the top of every political party’s agenda.

One can object to the ambitious claims of different parties and their political machinery, but there is a consensus among different stakeholders that until the rejuvenation of the large-scale manufacturing (LSM) sector, the reduction of unemployment would be a distant dream. It will be more difficult to control inflation until the exchange rate improves, coupled with a reduction in the cost of energy.

“Businesses and industries are in crisis, largely due to the high cost of doing business and inflationary pressures,” said Syed Rizwan Haider, a public relations specialist.

Speaking to The Express Tribune, Haider considered Pakistan as a country full of potential as it had abundant manpower, natural and land resources, which could produce different products on a large scale.

“What a businessman wants is a favorable environment, which can be created by long-term stable policy, reduced taxes and energy bills. If the government wants to increase electricity or gas tariffs, it can do so, but it must exclude various taxes, which normally cost up to 50% of the initial bills,” he said.

“The unfriendly business environment, coupled with import bans, has led to massive unemployment, causing additional problems for fresh graduates who prefer to jet abroad for better prospects, despite the fact that a large many immigration applicants do not do so. lack the skills needed to work in global economies.

The International Labor Organization (ILO), in its report, said Pakistan’s employment-to-population ratio was estimated at 47.6% in 2023, almost 2% lower than the pre-crisis ratio in 2019.

The estimated “jobs gap” rose to 2.4 million in 2023 and the number of people unemployed, out of work and actively looking for work, is expected to reach 5.6 million for 2023. This is translated into an increase of 1.5 million unemployed since 2001, and this estimate corresponds to the unemployment rate projected by the International Monetary Fund (IMF) of 8.5% in 2023, compared to 6.2% in 2021.

Professor Moazam Mahmood of the Lahore School of Economics said that with an expected economic growth of 2.4%, it would be difficult to create jobs for millions of Pakistanis in the 2023-24 financial year.

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“Pakistan’s economy is heavily dependent on imports, especially large-scale manufacturing, as shown in FY22. A high growth rate, averaging 6%, requires imports of Rs 90 billion. dollars.

“In FY23, imports fell to $67 billion and in FY24, import constraints still appear strong. Prior to this, in FY22, monthly imports exceeded $7 billion. In Q1FY24, imports remained at $5.5 billion per month,” Mahmood said.

He added that inflation was another challenge hampering growth, which over 15 months from July 2022 to October 2023 was estimated at 29.39%.

“For FY24, the main driver of inflation was the huge exchange rate depreciation, of around 37%, as already observed during the first quarter of FY24, contributing almost two third to the rate of inflation.

The second major driver of inflation was the budget deficit, estimated at 6%. “The impact of rising energy prices on inflation, for this most recent period, amounts to 4.2%, with a much larger part of this increase being based on additional taxation,” explained Mahmood.

“We expect the situation to get worse, but a long-term policy is the solution to achieve better economic growth and generate more job opportunities. »

He emphasized that Pakistan should now divide its economy between domestic economy and balance of payments situation.

“As a country, we now need to decide what to import for the first five years, as we need to stop importing unnecessary consumer goods and opt for import substitution in this category. After a successful five-year ban, policymakers should then ban certain intermediate goods, at least for another five years, with the aim of replacing them with local products. And then comes the turn of capital goods,” he said.

Of course, increased focus on the LSM and agricultural sectors could get the economy back on track. “It may take many years to restructure the economy, but we cannot sustain it without making fundamental changes, which could ultimately lead to low inflation and greater job creation. »

Published in The Express Tribune, February 8th2024.

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